Former Lancaster ISD CFO sentenced for embezzlement

by Brian Allen of of Best Southwest Citizen

The oft-debated financial problems of the Lancaster Independent School District have taken on another dimension. The district’s former chief financial officer Eugene Smith was sentenced May 7 for embezzling from the Washington D.C. school district.

Smith stole more than $46,000 after leaving his job as the school district’s director of internal audit. He served in that capacity from 1999-2002 when he was terminated. Federal prosecutors said Smith used an improperly obtained debit card to access an account he put under his personal control.

The Washington Post reports that Smith was tasked with closing down the accounts of the New Vistas Preparatory School. It was a charter school that closed in 2001 amid allegations of mismanagement. Smith did not close New Vistas account or the debit card back to the school district.

After New Vistas’ vendors were all paid, $52,679 remained in its account. Smith began making withdrawals for his personal use. He made 114 transactions withdrawing $46,742 according to prosecutors. It was Smith who set up the debit card and check-cashing card even though New Vistas was to pay its debts through checks and purchase orders.

In Lancaster, Smith was a central figure in the district’s late audit for the 2005-06 school year. When the district turned its general ledger over to its auditors, $14 million was unaccounted for. Thomas Moore of the firm of Judd, Thomas, Smith and Co. blamed bad accounting practices.

“At this point, we have found no instances of fraud, theft or any other misappropriation of assets,” Moore said when he presented his findings to the LISD Board of Trustees in April 2007. Moore did acknowledge “significant problems in the financial reporting area of the district.”’

LISD Superintendent Larry Lewis said Smith had not informed him of a $3 million discrepancy he found in district finances. Lewis told the board in 2007 that had Smith consulted him, Lewis would have been able to tell him the “missing $3 million” was the result of a bridge loan.

That loan had not properly been accounted for, Lewis said. The Texas Education Agency cited LISD’s pattern of applying for bridge loans and its low fund balance as reasons for a 2007 TEA audit.

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jefmelch, says:

“At this point, we have found no instances of fraud, theft or any other misappropriation of assets,” Moore said

The problem is that the school district lacks the tools to find such instances. For particular instances, "assets" such as computer equipment were very definitely stolen by the then-drug-addicted, self-confessed thief Nathan Smith from the Lancaster High School. But the district has no system for tracking physical assets. The Legislative Budget Board, in 2005, pointed out the district could get free software support from the Texas Education Services Center Region Ten (ESC-10) to accomplish exactly that mission. Track assets. Tracking includes recording what was bought, where it's supposed to be, how much it cost, how long the has district owned it, what is the depreciated value... The NAME OF EMPLOYEES WHO SIGNED A HAND RECEIPT AND IS SUPPOSED TO HAVE CUSTODY ...

An entire physical asset tracking system, is available for free.

The district, in response to open records request, reports they have not signed up with ESC-10's service.

They have not "turned on" the module in their own "Pentamation" software to do this mission. And they do not maintain a physical file cabinet or ledger book with manual records of such fixed assets.

If there are no records of what used to be where -- on what basis can Andrew Moore or anyone else report that none of the stuff is now missing?

We KNOW for a fact there was a fox in the henhouse, Nathan Smith at the High School, who stole from our kids.

We KNOW for a fact another fox, Eugene Smith, was in charge of the entire school district cash flow, some $50 million a year. We KNOW the fox is a thief. Confessed, convicted, sentenced.

Isn't worth a good close look to see if some of the eggs might be missing?

And wouldn't it be useful to review the hiring practices that allowed the foxes into the henhouse in the first place? How many candidates did the superintendent and the LISD trustees reject before accepting Eugene Smith? How did a business manager from the East Coast with no experience in Texas governmental funding or Texas school financial accounting -- a topic LISD Trustee Russ Johnson repeatedly has sworn no human being can possibly understand well -- wind up working for Larry Lewis?

Whenever a new out-of-state employee is hired, how broad is the background check? Do they look at criminal history for his prior residences - or do the same TEXAS ONLY criminal records review they do for local hires?

Does the HR department look for "moral" weaknesses? A guy who, just for instance, has a record of spousal assaults, neglected child-support payments, extra-marital affairs, bad personal credit, and sexual harrassment of his subordinates MIGHT be somewhat less than completely trustworthy in other matters. Does the superintendent have the tools to research such matters before he brings candidates to the trustees for confirmation?